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- US dollar treads lower as Barkin signals a dovish stance, US yields dip
US dollar treads lower as Barkin signals a dovish stance, US yields dip
- The DXY Index observed losses, and declined towards 102.00.
- Fed’s Barkin: “If inflation comes down, the Fed will respond”.
- Investors focus is set on Friday’s PCE data.
The US Dollar (USD) Index, trading at 102.00, and is currently in the grips of a downward trend, heavily influenced by falling yields and dovish comments from Federal Reserve's (Fed) Thomas Barkin, which fueled further easing bets on the next decisions from the bank.
The Fed's dovish outlook, coupled with cooling inflation figures, recently weighted to the US dollar's strength, as the bank pointed out that its officials are seeing more rate cuts than expected in 2024. In line with that, November’s Personal Consumption Expenditures (PCE) figures, due on Friday, may affect the Greenback price dynamics as they could give more strength to the case of earlier rate cuts next year.
Daily Market Movers: US Dollar down on lower yields, dovish Barkin comments
- The US Dollar is experiencing losses, resuming its downward path influenced by falling yields and dovish comments from Thomas Barkin. Housing data failed to trigger a reaction on the Greenback.
- Housing Starts statistics for the November report by the U.S. Census Bureau came in at 1.56M, against the consensus of 1.36M and the previous figure of 1.359M, indicating an increase in construction activity.
- Building Permits data for November surprisingly fell to 1.46M, below the expected consensus of 1.47M and the previous figure of 1.498M.
- Market attention is pivoting towards the upcoming report of the Core Personal Consumption Expenditures (PCE) Price Index on Friday, which will provide insights into spending trends and inflationary pressures.
- US bond rates for 2, 5, and 10-year bonds, currently trading at 4.43%, 3.90%, and 3.91%, respectively, are experiencing a downtrend, which lowers the demand for USD.
- Thomas Barking was seen as optimistic about the inflation outlook, commenting that demand and inflation are normalizing and that good progress is being made. He then pointed out that the bank will respond if inflation continues this path.
- According to the CME FedWatch tool, markets anticipate potential rate cuts by March 2024.
Technical Analysis: Bearish dominance continues, bulls fail to maintain momentum
The negative slope and territory of the Relative Strength Index (RSI) suggest continued bearish momentum aligning with the rising red bars of the Moving Average Convergence Divergence (MACD). This comes after bulls gained some ground in the last session but failed to maintain it to continue edging higher.
Meanwhile, on a more macro level, the index persistently stationed below the 20, 100, and 200-day Simple Moving Averages (SMAs) speaks for the pervasive selling domination. This ongoing bearish stance mirrors a firm control by the bears.
Support levels: 101.80,101.50, 101.30.
Resistance levels: 103.30 (20-day SMA), 103.50 (200-day SMA), 104.00.
US Dollar FAQs
What is the US Dollar?
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
How do the decisions of the Federal Reserve impact the US Dollar?
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
What is Quantitative Easing and how does it influence the US Dollar?
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
What is Quantitative Tightening and how does it influence the US Dollar?
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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